Interim results 2020 - Sureserve · Interim results to 31 March 201 SureserveGroup SureserveGroup SureserveGroup Interim results ... with a focus on clients in the UK public sector

Interim results to 31 March 2019

SureserveGroup

SureserveGroup

SureserveGroup

Interim results 2020


SureserveGroup

SureserveGroup

SureserveGroup

SureserveGroup

SureserveGroup

SureserveGroup

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27 May 2020

Sureserve Group plc

("Sureserve" or the "Group")

Unaudited Interim Results for the six months ended 31 March 2020 (H1 FY20)

Building profitable market share

Sureserve, the compliance and energy services Group, is pleased to announce its interim results for the six monthperiod ended 31 March 2020.

Chairman's statement

Bob Holt, Chairman of Sureserve Group commented

"Despite the very difficult economic circumstances facing the United Kingdom, the six months ended 31st March2020 showed continued growth and an impressive improvement in profits from our businesses.

The results include the latter part of March where the country and our Scottish, Welsh and Smart Meteringbusinesses were in lockdown as a result of the Covid-19 crisis.

All of our gas, water and electrical service businesses, classified as "key worker" status, carrying outpredominantly emergency testing services, continue to operate to agreed protocols with key clients. We maintainopen communications with our clients to ensure we are able to minimize the risks to our employees and positionus to participate fully when we return to more normal work streams.

Our Scottish and Welsh operations in Energy Services, where we manage the Emerging Fuel Poverty programmefor both governments and smart metering installation working for Big 6 energy companies, saw an immediate shutdown in March.

Like most other businesses, it was with deep regret that we furloughed those employees who were not required toprovide front line services. I would also like to thank those frontline employees for their commitment to deliver theemergency services in difficult conditions which our clients expect of us. I believe the team effort from the mostjunior to senior members of staff will hold the Group in good stead as we emerge from lockdown.

The Board felt it right and proper that it reduce its compensation for the period during which we have beenreceiving government support for the business by 20%.

I would also like to thank Peter Smith, our new Chief Financial Officer, and his team for their excellent workmanaging our working capital and thereby reducing our debt from £12.9m at the end of March 2019 to £3.5m atMarch 2020. Furthermore, at the time of writing, the Group is debt free with a modest net cash balance.

The Group has implemented a clear procedure for ensuring that all of our premises have undertaken acomprehensive risk assessment enabling all divisions of the group to recommence trading when the governmentdetermines it as safe to do so.

RNS Number : 9872N Sureserve Group PLC 27 May 2020

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Our risk assessments have been created in consultation with our teams and clearly established control measureswhich we have put in place. Due to the nature of our organization and its various geographical locations, eachbusiness has undertaken this risk assessment in the desired format and all assessments have been reviewed andapproved by the senior management teams and our SHEQ managers.

Looking to the future

We are a business which is heavily dependent on government and local authority expenditure. It is still too earlyto evaluate the long-term impact of the massive government deficits that are being incurred and what effect thiswill have on us over the medium term.

Our businesses are, however, market leaders providing critical services to the public sector offering, we believe,competitive pricing and meeting the high standards of performance expected by our clients.

We also take comfort that we have a strong order book of £323.7m. The Group's financial position is now betterthan it has been for many years and we believe that, with a highly competitive cost basis, we can gain marketshare as we emerge out of what has been a most difficult time for the UK economy.

Traditionally the profitability of the Group is heavily weighted towards the second half of the trading year. Sadly,our Welsh and Scottish operations remain closed and there is as yet no indication from the Scottish and Welshgovernments when they will resume.

England, on the other hand, is coming out of furlough so whilst our results will fall short of our original expectationsfor the year, we believe that the second half will show further progress."

Financial overview

· Revenue up 7% to £109.6m (H1 2019: £102.5m)· EBITA*1 up 27% to £3.9m (H1 2019: £3.1m)· Profit before tax up 129% to £2.6m (H1 2019: £1.1m)· Profit before tax before exceptional items and amortisation of acquisition intangibles up 35% to £3.4m

(H1 2019: £2.5m)· Earnings per Share (EPS) from continuing operations up 117% to 1.3p (H1 2019: 0.6p)· EPS excluding amortisation of acquisition intangibles and share based payments up 29% to 1.8p (H1

2019: 1.4p)· Operating cash conversion*2 of 88% (H1 2019: 51%)· Net debt*3 reduced to £3.5m (31 March 2019: £12.9m)· Order book of £323.7m providing visibility of earnings with circa 90% covered in FY20

*1 EBITA is defined as operating profit before exceptional items and amortisation of acquisition intangibles. EBITA excludes the profit from

Discontinued Operations.

*2 Operating cash conversion is calculated before the effect of IFRS16

*3 Net debt is calculated before the effect of IFRS16

Operational overview

Core divisions of Compliance and Energy Services both delivered strong performances, with demand forservices remaining solid. Continued reputation for delivery of quality services and market-leadingpositions in the highly-regulated public sector gas testing and energy management sectorsOutstanding record of contract wins worth £124m during the period strengthening our position across theUK

Outlook

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Well-placed to deliver a clear growth strategy in our market-leading gas services division 90% of FY2020 forecast revenue covered by the order book worth £323.7m, providing good visibility ofnon-volatile revenue streams. The nature of our work and clients is such that while we may see delays,we do not expect work to be cancelledThe Group is well-positioned for further organic growth in a fragmented and regional market Despite the challenges of Covid-19, we expect the continuation of strong trading in FY20 maintaining theGroup's momentum. The work we do on behalf of our clients is such that this will continue well into thefuture Increased opportunities to look for further growth from the current crisis, both with existing and futureclients.

Enquiries

Sureserve Group

Bob Holt OBE, Chairman 07778 798 816

Peter Smith, Chief Financial Officer 07590 929 431

Shore Capital (Nominated Adviser and Broker) 020 7408 4050

Antonio Bossi

Mark Brown

Fiona Conroy

Camarco (Financial Public Relations)

Ginny Pulbrook 020 3757 4992

Ollie Head

Notes to editors

Sureserve is a leading compliance and energy services group that performs critical functions in homes, public andcommercial buildings, with a focus on clients in the UK public sector and regulated markets. Services aredelivered through two divisions: Compliance and Energy Services.

The Group was founded in 1988 and is headquartered in Basildon and currently employs some 2,116 staff.

OPERATIONAL REVIEW

The unprecedented situation presented by the Covid-19 pandemic and associated Government response hasresulted in challenges for the Sureserve group and our operations, as with many others. The safety of ouremployees and customers has and will always be our absolute priority. Our focus has been the implementation of

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numerous measures to ensure that we can serve our customers in a completely safe manner while protecting thewellbeing of colleagues and minimising virus spread risk. Throughout this period we have witnessed manyencouraging examples of voluntary support and assistance by our key workers to communities and the individualswithin them.

Compliance (66% of Group revenue / H1 FY19: 63%)

Compliance: six months ended 31 MarchUnaudited6 months to 31March 2020

Unaudited6 months to 31March 2019

Change

Revenue (£m) *1 73.4 65.7 11.6%

EBITA (£m) *2 3.7 2.6 40.2%

EBITA margin 5.0% 4.0% 1.0ppts

*1 Division revenue figures include revenue from intercompany trading which accounts for a total across both divisions of £1.1m in 2020 and £1.3m in 2019.

*2 EBITA is defined as operating profit before exceptional items and amortisation of acquisition intangibles. EBITA excludes the profit from Discontinued

Operations.

The Compliance division provides planned and responsive maintenance, installation and repair servicespredominantly to local authority and housing association clients, in the areas of domestic and commercial gas, fireand electrical, water and air hygiene, and lifts. These services cover clients' social housing and public buildingassets, as well as industrial and commercial properties. Gas services comprise around three quarters of thedivision and we believe we remain the largest player in this fragmented and typically localised market.

We are predominantly paid for service and repair work on a fixed price basis evenly through the year. The gasbusinesses (which as noted above encompass the majority of the division's revenues) have more call-outs duringcolder months, resulting in higher labour and materials costs, with this seasonality driving higher levels ofprofitability and cash generation in the warmer months when call-out rates are lower and a proportion of ourengineers can be redeployed to jobs that yield further income. As a result, historically a significant proportion ofthe division's annual profit arises during the second half of the financial year, making the strong results in thiscurrent period even more pleasing. Revenue growth combined with a move to our targeted EBITA margin levelsof 5% has seen a considerable step forward in our profits.

The division repeated previous strong period-on-period revenue growth of 11.6% to £73.4m (H1 FY19: £65.7m),driven by continued new contract wins and extensions in addition to ongoing regulatory pressures in the sectorand growth within our fire protection business, demonstrating a continued improvement following work deliveredby that team. Installation works again exceeded expectations in the first half of the year, which by adding to ourimproved contractual client base further strengthened our position. EBITA increased by 40.2% to £3.7m (H1FY19: £2.6m). The additional profitability has been driven by a combination of two factors; increased revenues incomparison to the same period last year, with both gas and non-gas businesses showing consistent growth inrevenue, and further positive EBITA performance driven from margins which arises from work mix including morecommercial works in addition to efficiencies gained by the experienced management teams as scale continues toincrease.

The division continued its excellent track record on new wins during the period with particular success within ourAaron Services business, including £8.4m of work over three years for gas boiler upgrades and electrical testingwith Hinckley and Bosworth council, a repair and testing contract with Stonewater worth £4.0m and in additionsignificant framework acceptances with Efficiency East Midlands (up to £4.2m) and Fusion 21 (up to £5.0m, with

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the other gas businesses also on the framework) for a range of gas and electrical works. Other significant wins inthe division include £4.9m for Southern Housing and £3.9m with Your Housing for gas service and testing works,along with numerous other wins across the full range of workstreams.

We believe the medium and long-term outlook for our Compliance businesses remains strong, underpinned byhigh levels of long-term contracts and frameworks for which the division has continued to see high appointmentlevels. This is combined with an ongoing trend towards regulatory services and our client base largely of localauthorities and housing associations provides us both continuity moving forward along with clients whom weregard as blue chip with minimal debtor risk.

In the short-term we, like many others, are experiencing uncertainty caused by the Covid-19 pandemic. Thenature of our Compliance businesses is of core services including vital emergency repair and testing cover to ourlocal authority and housing association customers, to ensure compliance with gas, electricity and building testingregulations. It is therefore crucial they continue to perform their essential services and this is why the Governmenthas recognised many of our employees within their "key worker" classification.

The division is experiencing some delays in accessing certain residential and communal properties to undertakework as a result of the Government measures and guidance given in response to the Covid-19 outbreak, includingsocial distancing and travel restrictions. Some local authority customers have, where work is considered of alower priority or not essential, chosen to defer certain elements. We believe that following the temporaryuncertainty and disruption to the market our mix of customer and services remains strong and longer-term thedemand for these works and underlying fundamentals will underpin our future prospects when conditions recover. As a market leader in gas testing we believe the opportunities will be forthcoming as a result of other failingcontractors.

Energy Services (34% of Group revenue / H1 FY19: 37%)

Energy Services: six months ended 31 MarchUnaudited6 months to 31March 2020

Unaudited6 months to 31March 2019

Change

Revenue (£m) *1 37.3 38.0 (2.0%)

EBITA (£m) *2 1.9 1.9 1.6%

EBITA margin 5.2% 5.0% 0.2ppts

*1 Division revenue figures include revenue from intercompany trading which accounts for a total across both divisions of £1.1m in 2020 and £1.3m in 2019.

*2 EBITA is defined as operating profit before exceptional items and amortisation of acquisition intangibles. EBITA excludes the profit from Discontinued

Operations.

Energy Services undertakes a range of energy efficiency services for social housing and private homes throughtwo businesses:

· Everwarm delivering insulation and heating, energy efficient technologies including electrical vehiclecharging points, battery storage and solar PV, including works within non-domestic properties.Everwarm combines these services with providing carbon emissions savings for energy companies,enabling them to meet their legislative targets. The insulation operations are driven by seasonalinfluences, as we are unable to render or use fixing glue necessary for insulation at lower temperatures.As a result, we typically experience a far larger number of productive working days in summer,

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compared to winter months, with the result that this business also sees higher revenues and margins inH2 each year.

· Providor, a leading national installer of smart meters (operating as a meter asset manager and meteroperator), working for several "Big 6" and challenger utilities, who are required to install smart meters inevery home in England, Wales and Scotland. The business is experienced in the ongoing UK-widegovernment roll-out, previously beset by delays and technology challenges around deployment of newer"SMETS2" meter assets. As we have previously advised it was announced that the deadline forinstallation had been extended to 2024 to allow a more realistic timeframe for delivery. While anexpected impact is that overall roll-out costs for the industry may continue to rise, we believe a benefitfrom this revised timetable will be seen in more consistent volumes to allow more deliverable andsustainable installation levels in coming years. Approximately one third of the 55m total meters withinthe roll-out have now been installed as smart, with a significant market opportunity remaining.

The division showed period-on-period revenue reduction of 2.0% to £37.3m (H1 FY19: £38.0m), reflecting somerevenue reductions within the Everwarm business partly offset by an increase in smart meter installation work inProvidor reflecting previous contract wins and consistency in delivery as mentioned in previous updates. EBITAmargin improved to 5.2% on the lower revenues (H1 FY19: 5.0%). Results included operational improvementsfrom the prior interim period with continued positive performance in smart metering, which had a profitable H1trading position for the first time, in addition to a small profit within our Welsh Arbed joint venture (prior year hadbeen a mobilisation phase as previously advised). An overall decrease in profitability of the Everwarm business,due to a combination of the reduction in revenues, some impact from mix of works and a shortfall from the Covid-19 impact on March trading, offset those benefits. We saw relative consistency in the Scottish Warmworks jointventure trading performance.

The largest win for the division has seen extension of our services to the central belt of Scotland (SPOW) regionwith Scottish Power, offering further smart metering installation services with estimated total contract value of upto £24m. Further significant awards were within the Everwarm business and included £5.4m of air source heatpump installation works for E.ON, up to £10.7m with Argyll Community Housing Association for a mix of externalwall insulation and air source heat pump installation in addition to a £1.9m award with Waverley HousingAssociation for a mix of improvement measures including insulation. The Everwarm business was also placed onthe Fusion 21 framework, which is believed to represent a significant opportunity for future energy efficiencyworks.

Providor remains focused on existing contract delivery; and following the clarity now provided on the Governmentsmart meter roll-out extension, had signaled our intent to review new contract opportunities. This represents anopportunity to strengthen further, particularly following commencement of SMETS2 meter technology installations,with consistency generally expected within volumes up to 2024. Previously awarded agreements and anevaluation of existing contracts and potential extensions give us confidence over future delivery. We have beenworking well with Scottish Power as a key client in both the sector and across the division for a number of yearsand are delighted this strong relationship has resulted in extending our service offering to include their SPOWregion. This is also geographically attractive to the Sureserve Group given the pre-existing base in Bathgatewithin established Energy Services operations. We consider this a key demonstration of our ongoing servicedelivery to extend reach with an existing customer.

Within Everwarm, carbon prices remained largely stable during the period however volumes remain impacted bythe transition to "ECO3" which has proven challenging due to changes in measure types and qualifying property. We continue to work through this period and believe we are well-placed to deliver on behalf of our Utility partnersdespite the ongoing challenges, particularly given the volumes are now becoming more consistent.

Our Warmworks joint venture delivering the Warmer Homes Scotland initiative for the Scottish Government sawongoing operationally strong performance and client delivery. The Scottish Government's flagship Home EnergyEfficiency Programme for Scotland ("HEEPS") continued to perform well in the first half, bringing a diversifiedinstallation portfolio, focusing on central heating, boiler improvements and other energy efficiency installation

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measures.

The Arbed 3 programme for the Welsh Government via our joint venture with the Energy Saving Trust, focused onimprovements to households likely to be living in severe fuel poverty, is ongoing. In the reporting period thecontract moved to the delivery of more regular monthly installation performance, and while timings for specificschemes remain variable, contributed a positive six months of performance comparing favourably to themobilisation period in the comparable results last year.

Whilst our Energy business remains strong with an extremely positive future outlook, as evidenced by both tradingperformance and recent wins, the short-term has seen impacts from Government action to address the impact ofthe Covid-19 outbreak. The Energy division has not been afforded the same "key worker" status as seen in ourCompliance businesses due to a combination of our services delivered and devolved government approachesaround continuation of works, particularly in Scotland. This has resulted in what we believe to be a short-termreduction in trade within both Energy businesses and joint ventures for which we are navigating through a range ofmeasures. These include the application for appropriate government support, customer and supplier negotiationsand the implementation of any necessary cost control procedures to best mitigate the impact of the situation.

New wins and order book

The Board is encouraged that high bidding success rates continue to be achieved by the Group. Contract wins inthe period totalled £124m, contributing to a period-end order book of £323.7m. This represented a 7.7% decreaseon the comparative period (31 March 2019: £350.5m). The order book is consistent with our previously statedview around our targeted efforts on long term contracts that provide opportunities to deliver profitably in our coreareas. We believe our order book remains strong across the group and given the timing of award, the figuresstated do not include Scottish Power smart metering win as mentioned above. We continue to focus on securingcontracts with long term visibility and robust value and this is an area we intend to invest in going forward.

FINANCIAL REVIEW

The Group had a strong half year posting an EBITA of £3.9m (H1 2019: £3.1m).

During the six months to 31 March 2020, the Group adopted IFRS16, using the modified retrospective approachwhich means that comparatives are not required to be restated. The impact on the income statement are noted inthe table below, with comparability to H1 2019.

Whilst Group revenue and cash are unaffected by the adoption of IFRS16, the following areas are impacted:

· Operating profit before exceptional and other items has increased by £0.1m. Lease payments are nowreflected as a reduction in the lease liabilities. Conversely there is an increase in depreciation, andinterest on finance lease obligations

· Operating expenses (lease costs) have decreased by £2.3m

· Depreciation charges increased by £2.2m

· Finance costs increased by £0.15m such that the overall impact on profit before tax of adopting IFRS16has been a decrease of £0.1m

· The statement of financial position recognises £8.3m right of use assets and £8.3m lease liabilities ontransition.

· Total indebtedness therefore increases, although this does not have an impact on the Group's covenants,which are measured on an historic GAAP basis

A reconciliation of EBITA and adjusted EBITA pre-IFRS16 to profit before tax for the period is provided below:

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Unaudited six months ended 31 March2020

Unaudited sixmonths

ended 31March 2019

As reportedIFRS16impact Pre IFRS16

£'000 £'000 £'000 £'000Operating profit before exceptionalitems and amortisation of acquisitionintangibles 3,932 89 3,843 3,095

Amortisation of acquisition intangibles (800) - (800) (1,367)

Operating profit 3,132 89 3,043 1,728

Finance expense (614) (148) (466) (609)

Investment income 39 - 39 -

Profit before tax2,557 (59) 2,616 1,119

Group revenue increased by 6.9% to £109.6m (H1 2019: £102.5m), mainly reflecting an increase in revenues inthe Compliance division, whose revenues increased by 11.6% to £73.4m (H1 2019: £65.7m). Revenues in EnergyServices decreased by 2.0% to £37.3m (H1 2019: £38.0m). These divisional revenue figures include revenue fromintercompany trading which accounts for a total of £1.1m (H1 2019: £1.3m).

Group EBITA increased by 27.0% to £3.9m (H1 2019: £3.1m), reflecting an increase in EBITA in the Compliancedivision of 40.2% to £3.7m (H1 2019: £2.6m) and an increase in EBITA in Energy Services of 1.6% to £1.9m (H12019: £1.9m). Central costs were £1.7m (H1 2019: £1.4m).

We reported an operating profit of £3.1m (H1 2019: £1.7m), after £0.8m of amortisation charges for acquisitionintangibles (H1 2019: £1.4m). The reduction in amortisation reflected the fact that we have taken amortisationcharges in prior periods, meaning we are amortising a reduced base of intangible assets.

Net interest expense was £0.6m (H1 2019: £0.6m), which represented the interest charged on our debt facilities(net of finance income), together with the amortisation of debt issue costs, which totaled £0.4m (H1 2019: £0.6m).The H1 2020 figures includes £0.15m interest in relation to the adoption of IFRS16 (H1 2019: £nil).

Discontinued operations

Profits from discontinued operations amounted to £0.1m (H1 2019: £nil)

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Discontinued activities represent the Group's Construction and Property Services divisions which were sold on 17August 2018 and Orchard (Holdings) UK Limited which was sold in September 2017. The profits for the six-monthperiod to 31 March 2020 on disposal of discontinued operations comprise:

· £0.1m profit on sale of Orchard (Holdings) UK Limited from reassessment of the fair value ofconsideration receivable

On 20 December 2019, Mapps Group Limited, the acquirer of Lakehouse Contracts Limited and Foster PropertyMaintenance Limited, went into liquidation. We are in active dialogue with the liquidators and our advisors, in thehope of securing an early resolution.

Tax

The effective tax rate for the period was 19%, compared with a statutory rate of corporation tax of 19%. Weexpect a full year effective tax rate of 19%.

Earnings per share

Basic earnings per share from continuing operations were 1.3 pence (H1 2019: 0.6 pence), based on profit aftertax from continuing operations of £2.1m (H1 2019: £0.9m).

Adjusted earnings per share from continuing operations excluding amortisation of acquisition intangibles andshare based payments were 1.8 pence (H1 2019: 1.4 pence), based on adjusted profit after tax from continuingoperations excluding amortisation of acquisition intangibles and share based payments of £2.9m (H1 2019:£2.3m).

Our statutory profit for the period was £2.2m (H1 2019: £0.9m). Based on the weighted average number of sharesin issue during the year of 158.9m, this resulted in basic earnings per share of 1.4 pence (H1 2019: 0.6 pence).

Cash flow performance

Our adjusted operating cash flow (see note 11), before the IFRS16 adjustment, for the period was an inflow of£3.4m (H1 2019: £1.6m), reflecting an operating cash conversion of 88% (H1 2019: 51%). We calculate operatingcash conversion as cash generated from continuing operations, excluding the cash impact of exceptional itemsand amortisation of acquisition intangibles, divided by operating profit before exceptional items and amortisation ofacquisition intangibles. We believe this measure provides a consistent basis for comparing cash generationconsistently over time.

On a statutory basis, including the effect of IFRS16, we saw an operating cash inflow of £6.3m (H1 2019: outflowof £1.8m), representing a cash conversion of 160% inflow (H1 2019: outflow of 57%).

As we highlighted last year, the timing of revenues, method of contract delivery and customer contractual termscan all have an impact on working capital and, consequently, cash conversion.

The management of working capital is a continueddavid focus. This includes accrued income, debtors andcreditors. We manage these balances within our banking facilities. However, we recognise the importance ofsupporting our supply chain. We have ensured that we have paid our suppliers as normal.

Net debt

At 31 March 2020, the Group had net debt excluding the effect of IFRS16 of £3.5m (31 March 2019: £12.9m).However, this represents a snapshot in time and the weighted average revolving credit facility drawdown in theperiod was £9.7m (H1 2019: £15.3m).

The total net debt including the effect of IFRS16 is £9.9m, this is based upon a £6.4m adjustment for IFRS16.

Banking arrangements

We had drawn £10.0m at 31 March 2020 (31 March 2019: £14.5m) under our revolving credit facility (excluding

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borrowing costs). At the date of issuing this report we had drawn £6.5m (excluding borrowing costs), with a netcash, before finance lease liability of £4.3m; National Westminster Bank ('NatWest') continues to be an excellentand supportive partner.

In December 2018, the Group renewed its bank facilities to provide an overdraft facility of £5,000,000 togetherwith a revolving credit facility of £25,000,000, which runs to 31 January 2022.

We are confident that our banking facilities provide sufficient support in managing our corporate affairs andprovide sufficient capacity to plan for future growth, particularly in bidding with confidence on new contracts.

Statement of financial position

The principal items in our balance sheet are goodwill, borrowings and working capital.

There was a reduction of £0.8m in goodwill and other intangibles, mainly due to £0.8m amortisation charge ofacquisition intangibles.

Net current assets (excluding cash, borrowings and lease liabilities) stood at £7.1m at 31 March 2020 (31 March2019: £8.2m). Net current assets stood at £10.1m at 31 March 2020 (31 March 2019: £9.6m).

The principal movements in working capital are noted below;

Working capital Unaudited

31 March2020

Unaudited

31 March2019

Audited

30September

2019

£'000 £'000 £'000

Trade receivables 28.3 23.3 17.9

Accrued income 9.6 15.1 17.6

Trade payables (23.6) (23.7) (21.1)

Accruals (7.6) (7.8) (8.0)

Risks

The Board considers strategic, financial and operational risks and identifies actions to mitigate those risks. Keyrisks and their mitigation were disclosed on pages 29 to 31 of the Annual Report for the year ended 30 September2019.

We continue to manage a number of potential risks and uncertainties, including claims and disputes which arecommon to other similar businesses which could have a material impact on short and longer term performance.The Board remains focused on the outcome of a number of contract settlements on which there is a range ofoutcomes for the Group in terms of both cash flow and impact on the consolidated statement of comprehensiveincome.

The Group have implemented a clear procedure for ensuring that all of our premises have undertaken acomprehensive Risk Assessment in line with returning to work.

By adhering to Government Guidance and the steps we, as a responsible collective Group have proactively taken,we advocate that all our colleagues stay alert by:-

· Maintaining social distancing measures at all times - 2 metres apart where possible;

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· Ensuring they thoroughly wash/clean their hands regularly - adequate hand washing facilities and/orsanitising products are made available to all colleagues;

· By agreement with Line Manager and HR Department, work from home where appropriate;· Limiting contact with other people, where at all possible;· Office rotas are in place to prevent too many people from being in small spaces;· Phased working time and/or hours;· One-way systems around our larger offices with different entry/exit points;· Wearing a face covering when they are in an enclosed space where it is difficult to socially distance e.g.,

on public transport

Our Risk Assessments have been created in consultation with our colleagues and clearly establish the controlmeasures we have put in place. Due to the nature of our organisation and its various geographical locations, eachBusiness has undertaken this Risk Assessment in the desired format - however all assessments have beenreviewed and approved by the Senior Management Teams and our SHEQ Managers.

Going Concern statement

The Directors acknowledge the Financial Reporting Council's 'Guidance on the going concern basis of accountingand reporting on solvency and liquidity risks' issued in April 2016. The financial position of the Group, its cashflows, liquidity position and borrowing facilities are described in the Financial Review.

In assessing the Group and Company's ability to continue as a going concern, the Board reviews and approvesthe annual budget, three-year plan and a rolling 12 month forecast, including forecasts of cash flows, borrowingrequirements and covenant headroom. The Board reviews the Group's sources of available funds and the level ofheadroom available against its committed borrowing facilities and associated covenants. The Group's financialforecasts, taking into account possible sensitivities in trading performance including the potential impact of Covid-19, indicate that the Group will be able to operate within the level of its committed borrowing facilities and withinthe requirements of the associated covenants for the foreseeable future. NatWest remains supportive of theGroup and in December 2018, the Group renewed its banking facilities to provide an overdraft facility of£5,000,000 together with a revolving credit facility of £25,000,000, which runs to 31 January 2022. The Directorshave a reasonable expectation that the Group and Company have adequate resources to continue theiroperational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis of accounting in preparing the Interim report.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFor the six months ended 31 March 2020

Unauditedsix months

ended 31March 2020

Unauditedsix months

ended 31March 2019

Audited yearended 30

September2019

Notes £'000 £'000 £'000

Revenue 2 109,551 102,476 212,066Cost of sales (92,029) (88,130) (179,188)

Gross profit 17,522 14,346 32,878

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Other operating expenses (13,736) (11,622) (23,953)

Share of results of joint venture 146 371 429

Operating profit before exceptional itemsand amortisation of acquisition intangibles 2 3,932 3,095 9,354

Exceptional costs3

- - (225)

Amortisation of acquisition intangibles (800) (1,367) (2,735)

Operating profit 3,132 1,728 6,394

Finance expense (614) (609) (1,051)

Investment income 39 - -

Profit before tax from continuingoperations

2

2,557 1,119 5,343

Taxation4

(498) (218) (1,154)

Profit for the period attributable to theequity holders of the Group fromcontinuing operations

2,059 901 4,189

Discontinued operations

Profit for the period from discontinuedoperations

128 - 848

Profit for the period attributable to theequity holders of the Group

2,187 901 5,037

Earnings per share from continuing operationsBasic 6 1.3p 0.6p 2.7p

Diluted 6 1.3p 0.6p 2.6p

Earnings per share from continuing operationsand discontinued operations

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Basic 6 1.4p 0.6p 3.2p

Diluted 6 1.4p 0.6p 3.2p

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAt 31 March 2020

UnauditedAs at 31

March 2020

UnauditedAs at 31

March 2019

AuditedAs at 30

September2019

Notes £'000 £'000 £'000

Non-current assets

Goodwill 42,357 42,406 42,357

Other intangible assets 1,416 3,701 2,171

Property, plant and equipment 1,302 1,483 1,344

Right-of-use assets7

6,296 - -

Interest in joint venture 614 675 732

Deferred tax asset 603 195 467

52,588 48,460 47,071

Current assets

Inventories 3,276 3,034 3,059

Trade and other receivables 45,015 45,846 42,068

Cash and cash equivalents 9 6,273 1,407 2,452

54,564 50,287 47,579

Total assets 107,152 98,747 94,650

Current liabilities

Page 14 of 26

Trade and other payables 40,045 38,902 36,698

Lease liabilities 9 3,279 53 54

Provisions 10 465 1,549 415

Income tax payable 634 192 242

44,423 40,696 37,409

Net current assets 10,141 9,591 10,170

Non-current liabilities

Loans and borrowings 8,9 9,810 14,199 9,755

Lease liabilities 9 3,106 34 -

Provisions 10 3,287 3,813 3,195

16,203 18,046 12,950

Total liabilities 60,626 58,742 50,359

Net assets 46,526 40,005 44,291

Equity

Called up share capital 15,895 15,754 15,895

Share premium account 25,318 25,318 25,318

Share-based payment reserve 586 776 538

Own shares (290) (290) (290)

Merger reserve 20,067 20,067 20,067

Retained earnings (15,050) (21,620) (17,237)

Equity attributable to equity holders of theGroup 46,526 40,005 44,291

Page 15 of 26

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the six months ended 31 March 2020

Share capital

Sharepremiumaccount

Share-based

payment reserve

Ownshares

Mergerreserve

Retainedearnings

Totalequity

£'000 £'000 £'000 £'000 £'000 £'000 £'000At 1 October 2017(audited)

15,753 25,314 776 (290) 20,067 (11,378) 50,242

Loss for the period - - - - - (12,154) (12,154)

At 31 March 2018(unaudited)

15,753 25,314 776 (290) 20,067 (23,532) 38,088

Profit for the period - - - - - 1,799 1,799

Dividends paid (note5)

- - - - - (788) (788)

At 30 September2018 (audited)

15,753 25,314 776 (290) 20,067 (22,521) 39,099

Issue of shares(exercise of options)

1 4 - - - - 5

Profit for the period - - - - - 901 901


15,754 25,318 776 (290) 20,067 (21,620) 40,005

Issue of shares(exercise of options)

141 - - - - (141) -


Dividends paid - - - - - (394) (394)

Share basedpayments - - 544 - - - 544

Page 16 of 26

Reserve transfer - - (782) - - 782 -

At 30 September2019 (audited)

15,895 25,318 538 (290) 20,067 (17,237) 44,291


Share based payments - - 48 - - - 48


15,895 25,318 586 (290) 20,067 (15,050) 46,526

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWSFor the six months ended 31 March 2020

Unauditedsix months

ended 31March 2020

(post IFRS16adjustment)

Unauditedsix months

ended 31March 2019


September2019

Notes £'000 £'000 £'000

Cash flows from operating activitiesCash generated from / (used in) operations 11 6,292 (1,752) 5,539Interest paid (540) (467) (914)Interest received 39 - -

Taxation (242) 511 (34)

Net cash generated from / (used in)operating activities

5,549 (1,708) 4,591

Cash flows from investing activitiesReceipt of deferred consideration on priorperiod disposals

930 916 910

Purchase of property, plant and equipment (283) (334) (631)Purchase of intangible assets (232) (300) (403)

Sale of property, plant and equipment 3 13 86

Net cash generated from / (used in)investing activities

418 295 (38)

Cash flows from financing activities

Page 17 of 26

Proceeds from Issue of Shares - - 5Dividend paid to shareholders - - (394)Proceeds from bank borrowings - 1,500 -Repayment of bank borrowings - - (3,000)Lease payments (2,146) (57) (89)

Finance issue costs - (328) (328)

Net cash (used in) / generated fromfinancing activities

(2,146) 1,115 (3,806)

Net increase / (decrease) in cash and cashequivalents

3,821 (298) 747

Cash and cash equivalents at beginning ofyear

2,452 1,705 1,705

Cash and cash equivalents at end of year 6,273 1,407 2,452

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTSFor the six months ended 31 March 2020

1. Basis of preparation

The results presented in this report are unaudited and they have been prepared in accordance with therecognition and measurement of International Financial Reporting Standards (`IFRS') as adopted by the EU thatare expected to be applicable to the financial statements for the year ending 30 September 2020 and on the basisof the accounting policies to be used in those financial statements. The figures for the year ended 30 September2019 are extracted from the statutory accounts of the group for that period The condensed consolidated financialstatements do not include all the information and disclosures required in the annual financial statements andshould be read in conjunction with the Group's annual financial statements, being the statutory financialstatements for Sureserve Group plc, as at 30 September 2019, which have been prepared in accordance withIFRS as adopted by the European Union.

The condensed consolidated financial statements for the six months ended 31 March 2020 do not comprisestatutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the yearended 30 September 2019 have been approved by the Board of Directors and delivered to the Registrar ofCompanies. These accounts, which contained an unqualified audit report under Section 495, did not include areference to any matters to which the auditor drew attention by way of emphasis of matter and did not contain astatement under Section 498 (2) or (3) of the Companies Act 2006.

Significant accounting policies

Page 18 of 26

The accounting policies adopted in the preparation of the condensed consolidated financial statements areconsistent with those followed in the preparation of the Group's annual financial statements for the year ended 30September 2019, with the exception of those noted below;

IFRS 16

IFRS 16 'Leases' was issued in January 2016 and is effective for accounting periods beginning on or after 1January 2019. It has been applied by the Group from 1 October 2019 under the modified retrospective approach,applying the short term and low value lease exemption.

Under IFRS 16, leases have been recognised as a lease liability and a right of use asset. These lease liabilitieswere measured at the present value of the remaining lease payments based on a range of values approximatingthe Group's incremental borrowing rate as at 1 October 2019 of 4.01%. The range that is being used is between3.01% and 4.51% depending on the type of asset. The associated right of use assets for all leases weremeasured at the amount equal to the lease liability.

This has had a material impact on the Group's consolidated statement of financial position, as can be seen fromthe extract below:


Unaudited sixmonths

ended 31March 2019


£'000 £'000 £'000 £'000

Right-of-use assets 6,296 6,296 - -

Lease liabilities (current) (3,279) (3,249) (30) (53)

Lease liabilities (non-current) (3,106) (3,106) - (34)

Income tax payable (634) 12 (646) (192)

Net assets 46,526 (47) 46,573 40,005

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTSFor the six months ended 31 March 2020

1. Basis of preparation (continued)

Page 19 of 26

The effect on operating profit before exceptional and other items has increased by £0.1m. Lease payments arenow reflected as a reduction in lease liabilities. Conversely there is an increase in depreciation and interest onlease obligations.

A reconciliation of EBITA and adjusted EBITA pre-IFRS16 to profit before tax for the period is provided below:


Unaudited sixmonths

ended 31March 2019


£'000 £'000 £'000 £'000Operating profit before exceptionalitems and amortisation of acquisitionintangibles 3,932 89 3,843 3,095

Amortisation of acquisition intangibles (800) - (800) (1,367)

Operating profit 3,132 89 3,043 1,728

Finance expense (614) (148) (466) (609)

Investment income 39 - 39 -

Profit before tax2,557 (59) 2,616 1,119

Cash is unaffected by the adoption of IFRS16, but as noted on the extract of the Statement of Cash Flows below,cash generated from operating activities has increased being offset by a decrease in the cash used in financingactivities:


Unaudited sixmonths

ended 31March 2019


£'000 £'000 £'000 £'000

Net cash generated from / (used in)

Page 20 of 26

operating activities

5,549 2,122 3,427 (1,708)

Net cash generated from investingactivities

418 - 418 295

Net cash (used in) / generated fromfinancing activities

(2,146) (2,122) (24) 1,115

Net increase / (decrease) in cash andcash equivalents 3,821 - 3,821 (298)

Cash and cash equivalents at beginningof year 2,452 - 2,452 1,705

Cash and cash equivalents at end ofyear 6,273 - 6,273 1,407

The debt covenants on the Group's borrowing facility will be unaffected by the application of IFRS16 as thecovenant calculations are based on the accounting principles in place at the date the agreement was entered into.

Seasonality

The Group has seasonal influences in specific areas. The Compliance division experiences higher activity levelsin Gas and Lift services in colder weather, leading to higher working capital requirements and lower profitability inwinter, and the opposite in the summer. Within Energy Services it is not possible to render walls or use fixing glueat temperatures below three degrees centigrade, nor perform cladding work in high winds. As such, weather hasan influence on this business, meaning that the Group has to plan to increase capacity during warmer and moresettled periods to compensate for time lost during colder ones.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the six months ended 31 March 2020

2. Operating segments

The Group's chief operating decision maker is considered to be the Board of Directors ('the Board'). The Group'soperating segments are determined with reference to the information provided to the Board in order for it toallocate the Group's resources and to monitor the performance of the Group.

The Board has determined an operating management structure aligned around the two core activities of theGroup, with the following operating segments applicable:

· Compliance: focused on gas, fire, electrics, air, water and lifts where we contract predominantly underframework agreements. Services comprise the following:- Installation, maintenance and repair-on-demand of gas appliances and central heating systems- Compliance services in the areas of fire protection and building electrics- Air and water hygiene solutions- Service, repair and installation of lifts

· Energy Services: we offer a range of services in the energy efficiency sector, including external, internal andcavity wall insulation, loft insulation, gas central heating, boiler upgrades and other renewable technologies.

Page 21 of 26

The services are offered under various energy saving initiatives including Energy Company Obligations("ECO"), Green Deal and the Scottish Government's HEEPs ("Home Energy Efficiency Programme")Affordable Warmth programme. Clients include housing associations, social landlords, local authorities andprivate householders and we have trading relationships with all of the "big six" utility suppliers and many ofthe leading utility challengers. We also provide metering services involving the installation, servicing andadministration of devices and associated data.

The accounting policies of the reportable segments are the same as those described in the accounting policiessection.

All revenue and profit are derived from operations in the United Kingdom only.

The profit measure the Board used to evaluate performance is operating profit before exceptional items and otheritems, as outlined in Note 3 and on the face of the income statement.

The Group accounts for inter-segment trading on an arm's length basis. All inter-segment trading is eliminated onconsolidation.

The following is an analysis of the Group's revenue and operating profit before exceptional items and amortisationof acquisition intangibles by reportable segment:

Unauditedsix months

ended 31March 2020

Unauditedsix months

ended 31March 2019


September2019

£'000 £'000 £'000RevenueCompliance 73,351 65,743 133,051Energy Services 37,250 38,002 82,081

Total segment revenue 110,601 103,745 215,132Inter-segment elimination (1,050) (1,269) (3,066)

Total revenue 109,551 102,476 212,066

Reconciliation of operating profit before exceptional items and amortisation of acquisition intangibles to profitbefore taxation

Unauditedsix months

ended 31March 2020

Unauditedsix months

ended 31March 2019


September2019

£'000 £'000 £'000Operating profit before exceptional items and amortisation ofacquisition intangibles by segmentCompliance 3,701 2,640 8,470Energy Services 1,926 1,896 4,341Central (1,695) (1,441) (3,457)

Total operating profit before exceptional items and amortisation ofacquisition intangibles

3,932 3,095 9,354

Exceptional costs - - (225)Amortisation of acquisition intangibles (800) (1,367) (2,735)Finance costs (614) (609) (1,051)Investment income 39 - -

Profit before taxation from continuing operations 2,557 1,119 5,343

Page 22 of 26

Only the Group consolidated statement of financial position is regularly reviewed by the chief operating decisionmaker and consequently no segment assets or liabilities are disclosed here under IFRS 8.



3. Exceptional items

Unaudited sixmonths

ended 31March 2020

Unauditedsix months

ended 31March 2019


September2019

£'000 £'000 £'000

Restructuring costs - - 225

Total exceptional costs - - 225

Exceptional items are considered non-trading because they are not part of the underlying trade of the Group.

4. Taxation

The income tax charge for the six months ended 31 March 2020 is calculated based upon the effective tax ratesexpected to apply to the Group for the period of 19%.

5. Dividends

The proposed final dividend for the year ended 30 September 2019 of 0.5 pence per share amounting to £0.8mand representing a total dividend of 0.5 pence for the full year (2018: 0.25 pence per share), was paid on 30 April2020 to the shareholders on the register at the close of business on 31 January 2020.

6. Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

Unauditedsix months

ended 31March 2020

Unauditedsix months

ended 31March 2019


September 2019

Number Number NumberWeighted average number of ordinary shares forthe purposes of basic earnings per share 158,947,467 157,541,890 158,049,310

DilutedEffect of dilutive potential ordinary shares:

Share options 1,840,747 189,136 595,869

Weighted average number of ordinary shares forthe purposes of diluted earnings per share 160,788,214 157,731,026 158,645,179

Earnings for the purpose of basic and diluted

Page 23 of 26

earnings per share from continuing operationsbeing net earnings attributable to the owners of theCompany from continuing operations (£'000) 2,059 901 4,189

Basic earnings per share from continuingoperations 1.3p 0.6p 2.7pDiluted earnings per share from continuingoperations 1.3p 0.6p 2.6p

Earnings for the purpose of basic and dilutedearnings per share being net profit after taxattributable to the owners of the Company fromcontinuing and discontinued operations (£'000's) 2,187 901 5,037

Basic earnings per share 1.4p 0.6p 3.2p

Diluted earnings per share 1.4p 0.6p 3.2p

The number of shares in issue at 31 March 2020 was 158,947,467.

The weighted average number of Ordinary shares in issue during the year excludes those accounted for in theown shares reserve.



7. Right-of-use assets

On 1 October 2019 following adoption of the leasing standard IFRS16, assets in relation to leases which hadpreviously been classified as operating leases were recognised, along with the reclassification of finance-leasedassets held within tangible assets to right-of-use assets - see note 1 for details.

Right-of-useproperty

assets

Right-of-usemotor

vehicles Total£'000 £'000 £'000

CostAt 30 September 2019 - - -Change in accounting policy 3,159 5,171 8,330At 1 October 2019 3,159 5,171 8,330Additions - 314 314Disposals - (332) (332)

At 31 March 2020 3,159 5,153 8,312

DepreciationAt 30 September 2019 - - -Change in accounting policy - - -At 1 October 2019 - - -Charge for the year 597 1,585 2,182Disposals - (166) (166)

At 31 March 2020 597 1,419 2,016

Page 24 of 26

Net book valueAt 31 March 2020 2,562 3,734 6,296

At 30 September 2019 - - -

8. Loans and borrowings

Unaudited31

March2020

Unaudited31

March2019

Audited 30 September

2019

£'000 £'000 £'000Bank loans and credit facilities at amortised cost:Current - - -Non-current 9,810 14,199 9,755

9,810 14,199 9,755

Maturity analysis of bank loans and credit facilities falling due:In one year or less, or on demand - - -Between one and two years 9,810 - -Between two and five years - 14,199 9,755

9,810 14,199 9,755



9. Net debt

Unaudited31

March2020

Unaudited31

March2019

Audited 30

September2019

£'000 £'000 £'000Cash and cash equivalents 6,273 1,407 2,452Bank loans and credit facilities (9,810) (14,199) (9,755)Finance lease obligations - (87) (54)

Pre IFRS16 net debt (3,537) (12,879) (7,357)Lease liabilities (6,385) - -

Total net debt (9,922) (12,879) (7,357)

10. Provisions

Page 25 of 26

Legal andother£'000

At 1 April 2019 (unaudited) 5,362Additional provision 172Utilised in the period (1,924)At 30 September 2019 (audited) 3,610Additional provision 237Utilised in the period (95)

At 31 March 2020 (unaudited) 3,752

Current provisions465

Non-current provisions 3,287

Legal and other

Other costs relate to property dilapidation obligations, potential contract settlement costs and other potential legalsettlement costs. These are expected to result in an outflow of economic benefit over the next one to three years.



11. Cash used in operations

Using consistent accounting policies

Unaudited six

months ended

31 March 2020

(post IFRS16

adjustment)

Unaudited six

months ended

31 March 2020

(pre IFRS16

adjustment)

Unaudited six

months

ended 31

March 2019

Audited year

ended 30

September

2019

£'000 £'000 £'000 £'000Operating profit 3,132 3,043 1,728 6,394Adjustments for:Depreciation 2,515 333 327 693Amortisation of intangible assets 978 978 1,524 3,159Share-based payments 48 48 - 544Profit on disposal of property, plant andequipment

(3) (3) (13) (40)

Changes in working capital:Inventories (240) (240) 1,188 1,157Trade and other receivables (3,455) (3,455) (3,976) 199Trade and other payables 3,175 3,176 (197) (2,491)

Provisions 142 142 (2,333) (4,076)

Cash generated from / (used in) operations

6,2922

4,0222

(1,752) 5,539

Adjusted operating cash conversioncalculation

Page 26 of 26

Cash generated from / (used in) operations 6,292 4,022 (1,752) 5,539 Impact of exceptional and other costs in theperiod

(656) (656) 3,331 4,364

Adjusted cash generated from operations 5,636 3,366 1,579 9,903

Operating profit before exceptional items andamortisation of acquisition intangibles 3,932 3,843 3,095 9,354

Operating cash conversion % 143% 88% 51% 106%

Statutory operating cash conversioncalculation

Cash generated from / (used in) operations 6,292 4,022 (1,752) 5,539 Operating profit before exceptional items andamortisation of acquisition intangibles 3,932 3,843 3,095 9,354

Statutory operating cash conversion % 160% 105% (57%) 59%

12. Related party transactions

There have been no material changes to the related party balances disclosed in the Group's Annual Report andAccounts 2019 and there have been no related party transactions that have materially affected the financialposition or performance of the Group in the six months to 31 March 2020.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the FinancialConduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the useand distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.

END

IR FLFSRELIRFII

mailto:[email protected]

http://www.rns.com/


Sureserve Group plcUnit 1Yardley Business Park Luckyn Lane BasildonEssex SS14 3BZ

Tel: 020 3961 5210

www.sureservegroup.co.uk

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Interim results 2020 - Sureserve · Interim results to 31 March 201 SureserveGroup SureserveGroup SureserveGroup Interim results ... with a focus on clients in the UK public sector